The mortgage interest deduction is often criticized for contributing to after-tax income inequality. Yet the effects of the mortgage interest deduction on income inequality are more nuanced than the conventional wisdom would suggest. We show that the mortgage interest deduction causes...

During the last decade the judiciary and policy makers in both Canada and Australia have struggled to define coherent principles pertaining to the deductibility of interest on borrowed funds. Neither jurisdiction has appeared to make reference to the experiences in the other notwithstanding that...

In an article published in this publication earlier this year (Issue 9, 6 March 2003, paragraph 115) the author outlined the cases and rulings featured in the ongoing issue as to the continued deductibility of interest post business cessation. The author reflected on the ATO's likely response to...

Most corporate tax systems in the world have in common that debt is treated favorably due to an allowance of interest deduction. This causes a so-called “debt bias” in modern tax systems. In literature the implications of this taxation habit are broadly discussed. The political dimension,...

We simulate changes to metropolitan area home prices from reforming the Mortgage Interest Deduction (MID). Price simulations are based on an extended user cost model that incorporates two dimensions of behavioral change in home buyers: sensitivity of borrowing and the propensity to use tax...

The $69 billion mortgage interest deduction (MID) is often viewed as an element of the tax code that promotes middle-class prosperity. However, 64 percent of the benefits, as measured by effective tax reduction, goes to households earning more than $100,000 per year. The large variation in...

We explore the effect of taxes on the prices of municipal bonds. Although interest is tax-exempt, the gain resulting from purchasing a muni at a deep discount below the so-called de minimis threshold is subject to severe tax treatment. The gain is taxed as ordinary income at maturity; currently...

This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential...

Tax experts have long indicted the mortgage interest deduction (MID) for distorting the housing and mortgage markets and for inequitably distributing its benefits. It creates a false baseline for the cost of housing, encourages taxpayers to pay for homes with debt rather than with cash or...